Since the former Catholic bishop Fernando Lugo won the election for president in Paraguay, tensions between that country and Brazil have increased. The nationalist and populist discourse of Paraguayan leader, something similar to what Hugo Chavez does in Venezuela, is feeding a kind of xenophobia against the Brazilians in Paraguay.

As I said in a previous article, the Brazilians is becoming to be seen as “the imperialists who speak Portuguese.” Countries like Bolivia, Ecuador and Paraguay are now acting as if Brazil were an imperialist power.

However, this is a very dangerous game, especially in the Paraguayan case. Let’s to the facts.

The Itaipu Hydroelectric Power Plant is located in the Paraná River on the border between Brazil and Paraguay, was established in 1973, but only really began to to function effectively in 1984 to generate energy. It is considered the biggest hydroelectric plant in the world, in terms of generated energy.

The governments of Paraguay and Brazil are the two shareholders of the company with equal shares. When the treaty was signed, it was agreed that each country would be responsible for 50% of initial capital ($ 50 million for each).

Paraguay, however, as had no financial resources to it borrowed money from Brazil, not only for the initial capital but also for other investments. The result is a debt of $ 18 billion to be paid until 2023.

Although the plant belongs to the two governments, like Brazil was the country that actually paid by the project, the two governments agreed at the time that Brazil would have certain preferences. Paraguay is entitled to 50% of energy generated, but as does not need all that amount (just uses only 5%), the rest is sold to Brazil at cost as a reduction of debt.

The Itaipu hydroelectric power plant is extremely important in economic and political discussions in Paraguay. The plant is responsable for 90% of all energy used by the country. When the debt is over in 2023, Itaipu will be worth, according to estimates, about $ 60 billion - almost three times the Paraguayan GDP.

However, this topic has gained even greater importance now that Paraguayan President is involved in scandals of paternity (according to local media, while he was a Catholic bishop, he had 4 children).

And what was the strategy for Lugo to try to improve his image? Create friction with Brazil.

Recently the presidents of Brazil and Paraguay had a meeting to reach some kind of agreement on Itaipu. On the one hand, Brazil offers $ 300 million per year for energy surplus and a loan amounting to USD 1.5 billion to finance the infrastructure works in Paraguay. But Paraguay refused this offer, demanding that Brazil pays U.S. $ 1 billion annually for energy surplus. An offer that Brazil can not and should not accept.

A problem arising from the failure of the negotiations is that perhaps the Paraguayan president could make his speech even more radical, or even an attitude against Brazil.

Last year, when Brazilian farmers have been attacked by Paraguayan peasants, the Brazilian Army “accidentally” invaded Paraguay. Whereas Itaipu supplies 20% of electricity consumed in Brazil, a Paraguay hostile action could trigger a nasty Brazilian reaction.

Therefore, it is necessary that Fernando Lugo abandon his populist discurse and accepted to negotiate with Brazil. Especially because who lose with this dispute is Paraguay.